The first three subsidised Contracts for Difference (CfDs) under the UK government’s Hydrogen Production Business Model programme have now been signed, guaranteeing a “strike price” of £9.49 ($11.86) for every kilogram of green hydrogen produced for 15 years.
Another eight contracts are due to be signed early in the new year, according to the Low Carbon Contracts Company (LCCC) — the Department of Energy Security and Net Zero (DESNZ) agency tasked with managing the government’s Contracts for Difference schemes.
The 11 winning projects were announced more than a year ago — on 14 December 2023 — and more than £90m have already been allocated from the separate Net Zero Hydrogen Fund to support their construction.
The three hydrogen projects signing contracts from DESNZ’s Hydrogen Allocation Round 1 (HAR1) are:
- H2 Energy and Trafigura’s 14.2MW West Wales project near Milford Haven, Pembrokeshire;
- Scottish Power and Storegga’s 10.6MW Cromarty Hydrogen project in northern Scotland;
- Scottish Power’s 7.1MW Whitelee Green Hydrogen project, at the utility’s existing 539MW Whitelee wind farm near Glasgow.
“As one of the first structured, government-backed frameworks globally, the Hydrogen Production Business Model provides long-term revenue support for hydrogen producers, reducing investment risks and accelerating the development of the hydrogen economy,” said the LCCC.
“These contracts will play a pivotal role in decarbonising critical industries, while supporting regional economic growth and bolstering the UK’s journey to Net Zero.”
The CfD scheme does not pay £9.49/kg directly to the producer, but provides the difference between the strike price and a reference price (in this case, the market price of grey hydrogen). This means the producer can sell its green H2 at the same price as grey H2 (made from unabated natural gas), with a top-up from the government to ensure that it receives £9.49 for every kilo produced.
If the market price rises above the strike price (for instance, if the price of natural gas increases dramatically), the developer has to pay back the difference to the government to ensure it still receives only £9.49 per kilogram.
